20 Oct How to Calculate ROI of your Marketing Efforts
As marketers, we struggle with how to calculate ROI (return on investment) and improve a host of key performance indicators (KPIs). With metrics like website visits, conversion rates, generated leads per channel, social media platform engagement, blog post shares, email click-through rates, the list grows every day. But for the strategic-minded audience, you can’t present everything you measure.
A full 73% of those strategic-minded executives don’t believe their marketing focuses enough on results to drive demand, and so marketing departments need to report on marketing’s impact on their companies’ or divisions’ bottom lines.
Keep reading to learn six critical marketing metrics to show your company’s leadership that your role is a key driver to its bottom line. Let’s get started.
Client Acquisition Cost (CAC)
CAC is the total average cost your company spends to get a new client.
Why It Matters
An increase in client acquisition cost can indicate a problem with sales or marketing efficiency. You want a low average CAC, relative to the value of an average client. But companies growing and/or moving up the client food chain may need to invest shorter term marketing costs, thereby increasing CAC temporarily, to achieve longer term growth in revenue and marginal profit.
How to calculate ROI
Divide your total Sales and Marketing Cost for a specific time period by the number of New Clients acquired during that same period.
Marketing % of Client Acquisitions Cost (MPCAC)
MPCAC is the Marketing-only portion (as opposed to Sales) of CAC, calculated as a percentage of overall CAC.
Why It Matters
MPCAC can show how a marketing team’s performance and spending impact overall CAC. An increase in MPCAC can indicate:
- The marketing team is spending too much or has too much overhead.
- The sales team could have underperformed (and consequently received) lower commissions or bonuses.
- You are in an investment phase, spending more on marketing to provide more quality leads and improve sales productivity.
How to calculate ROI
Divide Marketing Cost by total Sales and Marketing Cost used to compute CAC.
Ratio of Client Lifetime Value to CAC (LV:CAC)
LV:CAC compares the average client Lifetime Value (LV) with CAC
Why It Matters
The higher this ratio, the more ROI your sales and marketing team is delivering to your bottom line. However, a ratio that’s too high may indicate a lack of investment in reaching new clients. Spending more on sales and marketing will reduce LV:CAC, but could help speed long term growth.
How to calculate ROI
Divide LV by CAC as an X to 1 ratio.
Time to Payback TPCAC
TPCAC is the average number of months your company takes to earn back the CAC it spent acquiring new clients.
Why It Matters
The less time it takes to payback CAC, the sooner you can start creating long term profit from those new clients. Lower TPCAC also tends to allow for faster growth. In very general terms, most businesses aim for TPCAC less than 12 months.
How to calculate ROI
Divide CAC by Average Marginal Profit per period for new clients.
Marketing Originated Client % (MOCP)
MOCP is a ratio that shows what new business is driven by marketing, by determining which portion of total client acquisitions directly originated from marketing efforts.
Why It Matters
MOCP tells us the impact your marketing team’s lead generation efforts have on acquiring new clients. The metric depends heavily on your sales and marketing relationship and structure, so an ideal result will vary depending on industry and business model. Organizations with outside sales teams and inside sales support might target 20-40% MOCP, whereas those with inside sales teams and lead-focused marketing teams might strive for 50-80%. Note this metric can be calculated using dollars instead of clients when the relative value of clients differs significantly.
How to calculate ROI
Take all new clients from a period, and tease out what percentage started with a lead generated by your marketing team.
Marketing Influenced Client % (MICP)
MICP accounts for all new clients marketing interacted with while leads, anytime during the sales process.
Why It Matters
MICP gives decision makers a big-picture look into marketing’s overall impact within the entire, consolidated sales cycle of generating new leads, nurturing existing ones, and helping sales close deals. Note this metric can be calculated using dollars instead of clients when the relative value of clients differs significantly.
How to calculate ROI
Take all new clients from a given period, and determine the percentage that had any interaction with marketing touches while leads.
In Closing
As marketers, we track so many different data points on what’s working and what’s not that it can become easy to lose sight of what’s most important to those not immersed in marketing to-do lists.
When reporting to executives, it’s crucial to convey performance in a way that’s quickly engaging and appreciated.
When you can present metrics that resonate with decision-makers, you’ll be in a much better position to make a winnable case for budgets and strategies to rev your organization’s marketing now and in the future.
Want to dig into this subject a little more? Want to read benchmarks and see examples for each metric listed above?
Get our free 6 B2B Marketing Metrics eBook.